Policy-makers’ positions on pension reform

Each major political party was asked to outline their stance on pension reform and expanding pension coverage for Canadians. Here’s what they said.

Green Party of Canada
Pension reforms must be built upon the system that will best create decent pensions to keep the elderly out of poverty, require minimum additional contributions and have low administrative and investment costs.

The only system capable of meeting these goals is the Canadian Pension Plan (CPP)—a proven system that is the envy of many countries.

Approximately 35% of elders are dependent upon the Guaranteed Income Supplement (GIS) to keep them out of poverty. This is partly because, currently, the CPP objective of just replacing 25% of the average industrial wage is too low. A 50% income replacement ratio would dramatically reduce the reliance on GIS to keep the elderly out of poverty and reduce the cost of GIS to the federal government by billions annually.

The Year’s Maximum Pensionable Earnings (YMPE) should be raised to at least $90,000 and consideration should be given to raising it to the full Income Tax Act limit for registered pension plans of $122,222 (as of 2009) pending a evaluation/review in a decade.

Subject to an actuarial evaluation, it is expected that these benefit could be achieved with a phased in increase of CPP contribution rates from the current 9.9% to approximately 14.5%. Most if not all of which would be offset by reductions in workplace pensions for those with them. Redirected GIS savings could be used to offset some of the required contribution increase.

Defined benefit plans are much more efficient than defined contribution (DC) plans in that they produce significantly higher pensions for the same contributions, yet DC plans get the same tax support.

Prorating tax expenditures to the value of projected pension would bring fairness and equity back into the system.

RRSPs are very tax inefficient and median asset values too low to provide a meaningful pension supplement.

New Democratic Party
One-third of Canadian families have no retirement savings. Two-thirds of Canadians have no company pension plan. The New Democrat retirement income reform package offers practical, workable solutions to help ensure all Canadians are able to retire with dignity.

New Democrats believe that expanding CPP is a crucial step. We would work with the provinces to phase in a doubling of benefits, so that Canadians will have the chance to save in the least expensive, most secure, inflation-proof, retirement savings vehicle available.

Expanding CPP is not all that needs to happen. While our proposed expansion is phased in over a number of years, we have a suite of other reforms designed to shore up existing pension plans and to address the poverty in which many of our seniors continue to live.

An increase to the GIS—a total cost of $700 million of a year—could lift over a quarter of a million seniors out of poverty.

We would secure workplace pension plans through a mandatory pension insurance program, paid for by pension plan sponsors.

We would also create a national agency, managed by the Canada Pension Plan Investment Board, to adopt the pensions of failed companies and manage them. This would minimize the losses that pensioners from bankrupt companies often face.

Finally, to lift pensions further we would amend Canada’s bankruptcy laws so that unfunded pension liabilities are moved to the front of the line of creditors for payment. In fact, the NDP bill that is designed to accomplish this, C-501, is currently being debated in the House of Commons committee.

Liberal Party of Canada
In an effort to ensure that Canada’s retirement income system is prepared for the challenges of an aging population, the Liberal Party of Canada Expert Working Group on Retirement Income Security suggests adopting a multi-pronged strategy designed to shore up our systems while being mindful of certain principles.

1. Underscoring the societal value of a functioning pension system – A reliable retirement such as the healthcare, welfare and housing systems is reduced.

2. The re-thinking of the “three pillars” of the pension system – Canada has prided itself on the success of its retirement income system. The three primary mechanisms associated with that system are: Old Age Security/Guaranteed Income Supplement, CPP and various privately administered options. A fourth pillar includes private savings outside of tax-sheltered plans. Shortcomings must be purged and strengths should be expanded upon.

3. The Integration of Existing Systems – It is essential that existing structures be examined holistically and with a multi-generational focus. Public and private structures should be integrated with the goal of providing seamless coverage to all. Consideration must be given to ensure retirement income security, adequacy and coverage is equitable for all Canadians.

Those reform proposals include the following:

the establishment of a supplemental CPP;
the enhancing of the existing CPP;
launching financial literacy measures;
a review of the “cost of living” calculation;
modernizing regulations and the Income Tax Act; and
the creation of a stranded pension agency.

Many suggest a nation can be judged by how it treats the most vulnerable. This adage is most appropriate in the context of pension reform. The Liberal Party is committed to advancing real solutions to these challenges.

Conservative Party of Canada

The Government of Canada is working closely with the provinces and territories to strengthen Canada’s retirement income system. In fact, at their last meeting in Prince Edward Island on June 14, Finance Ministers agreed to explore three specific system improvements:

Pension regulation and tax changes to encourage more retirement savings by allowing broad-based, defined contribution (DC) pension arrangements for multiple employers, employees and the self-employed;
Promoting financial literacy to empower individuals to make the best decisions and take more responsibility for their own retirement; and
A modest, phased-in and fully funded enhancement to the Canada Pension Plan

Discussions will ensure that the proposed options fully complement the Government’s overall economic agenda of jobs, growth and fiscal consolidation in the wake of the global financial crisis. They must also be fair and consistent in terms of who benefits and who pays.

Innovative DC pension arrangements would improve the range of retirement options available to Canadians. Employers that currently do not offer a pension plan would be able to take advantage of an administratively straight-forward plan to assist their employees in their retirement savings. This would be particularly attractive to smaller-sized employers.

Also, unlike pension plans today, employees of employers that do not offer a plan would also be permitted to join one of these large-scale, pooled arrangements, as would self-employed individuals. This would allow them to benefit from lower investment costs.

Governments have also explored a modest expansion to the CPP to complement pension innovation. The CPP has been providing Canadians with a secure, life-long retirement pension and is financially sustainable in its current form. The CPP is jointly managed with provinces and we have been working closely together to build consensus before any major changes are brought forward. There are no quick or easy solutions here. Several provinces have concerns that remain unresolved.

The Government of Canada will therefore continue to explore this and other options at the Finance Ministers meeting in Kananaskis on Monday, Dec. 20 as we work to ensure a strong retirement system.

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